Question

Quantity of Beer 250 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - --------- + Quantity of Wine 300

Use the graph to label the following statements as True/False:

- Point X is inefficient.

- Movement from point X to point Z is an outcome that can be explained by the fact that society now prefers more wine to beer.

- If the labor supply increased we would most likely observe movement along the PPF.   

- If society produced 300 wines and zero beers this outcome would be efficient.

- As the production of wine increases the opportunity cost of production decreases.   

- If someone creates a machine that allows wine to be produced more efficiently, then point Y could become feasible.

Answer 1

- Point X is inefficient : true (it lies inside PPF)

- Movement from point X to point Z is an outcome that can be explained by the fact that society now prefers more wine to beer: false (Z cannot be attained, it is outside the PPF)

- If the labor supply increased we would most likely observe movement along the PPF: false (PPF would move outwards)

- If society produced 300 wines and zero beers this outcome would be efficient: true (it lies on the PPF)

- As the production of wine increases the opportunity cost of production decreases : false (outward bulge indicates rising opportunity costs)

- If someone creates a machine that allows wine to be produced more efficiently, then point Y could become feasible: true (PPF moves outwards)